Opportunities for loss-making companies

Posted 26th September 2014

It is easy to fall into the trap of thinking when you are loss making and not paying any corporation tax that there’s nothing the tax man can do for you. However, in certain circumstances HMRC will pay you, even when you have paid them nothing.

The first thing to look at is whether you have paid any corporation tax in the previous year on your trading income. If so, you may be able to ‘carry back’ some losses to offset against the previous year’s tax, generating a welcome repayment from HMRC for your company. Also, if you are in a group with other companies which perhaps are profitable, you can share your losses with those other group companies to save them tax, and even receive payment for those losses, if you wish.

R&D tax credits are available for companies engaged in R&D activities and trying to achieve a scientific or technological advance. If a company is profitable these will be set against the corporation tax bill reducing the amount payable, but if the company is making a loss and not paying tax, then the tax credit is paid directly to the company, usually within 30 days of a claim being submitted.

Tax credits are also available for loss making companies which purchase certain environmentally friendly or energy saving assets. The list of items that qualify for this relief is quite extensive, but the most common include energy efficient lighting (such as White LEDs), certain boilers, air conditioning and refrigeration equipment. It is always worth reviewing purchases made over the last couple of years to see if they qualify, and also factoring in when making future purchasing decisions.

Even if you can’t get any tax credits or repayments from HMRC, it is worth reviewing your tax position to see if you can take any action now to help save tax later when you are back in profits. What you can do will depend very much on your company’s individual circumstances, but could include things such as disclaiming capital allowances to increase the amounts available in future years, or even bringing forward any planned capital disposals to shelter any profits with losses you are currently generating.

So even if you are not paying any tax right now, it can be worthwhile spending a few minutes reviewing the position to see if there is anything you can claim.